Is America at the Point of No Return?

[obgyn65]

The American Dream is not the only dream.

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Originally Posted by Bimmerbill Is the American Dream dead?

[Retire Soon]

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Originally Posted by samclem We know what happened. Explain how it was a "misuse" of capitalism? If anything, folks on the left usually maintain that it was "capitalism run amok" or "too much free market." Every one of these examples you cite had willing buyers and sellers. With the housing bubble, one could make a case that the excesses resulted in large part because government significantly reduced the need for at least one party in these transactions to exercise due diligence because their risks were being underwritten by taxpayers. Regarding the financial bailout, Washington has now shown the Big Boys that their bad deals will be made good by taxpayers. We can complain about all this, but it's not correct to blame capitalism when the problem clearly lies in the excesses born of "improvements" to capitalism.

Wall Street banks defrauded unsuspecting investors when they sold subprime loans that had been packaged as CDOs. These loans were not based upon the borrowers ability to repay the loans. In my way of thinking, fraud is a classic example of misuse of capitalism. Somewhere, there needs to be at least some semblance of honesty and ethics.

Now that the banks are foreclosing on these people, they need to prove ownership of these properties in a court of law. Much of this paperwork was lost when the banks bundled these loans into securities. So what do the banks do? They pay people by the hour to forge signatures. This is another example of "misuse of capitalism." Again, capitalism does not work, when there is rampant and ongoing financial trickery. Freedom of enterprise does not mean one is free to commit fraud.

CBS 60 Minutes aired a segment recently entitled, "Mortgage Mess, Who Really Owns your Mortgage?" I think this is part of the point that Paul Farrell is trying to make about Wall Street being obsessed with greed at the expense of Main Street. Why else would banks pay someone to forge thousands of signatures on trust deeds that many Americans consider to be sacred?

Mortgage mess: Who really owns your mortgage? - 60 Minutes Overtime - CBS News

[dex]

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Originally Posted by GregLee That doesn't follow. Even if it did, it would not show that income redistribution does not create more consumption.

If you were to do your re-distribution how much money would you be taking from the rich and how much would be going to each non-rich?

[Beryl]

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Originally Posted by GregLee The consumption of the rich does create jobs, true, but the consumption of the non-rich creates even more, because the non-rich spend a larger portion of their income. So, contrary to what you say, taxation that redistributes income does help the economy. The rich don't spend enough.

+1

[GregLee]

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Originally Posted by dex If you were to do your re-distribution how much money would you be taking from the rich and how much would be going to each non-rich?

"My" redistribution? I'm not proposing redistribution. I pointed out that an argument made above that unequal distribution had the good effect of increasing consumption and therefore jobs was incorrect, and actually, a more equal distribution would increase consumption. I am also not agreeing with, or opposing, the previous poster's assumption that increasing consumption would increase jobs. You can't necessarily infer my views from the arguments I criticize. On occasion, I may even oppose an argument for a position I favor (on other grounds).

[FinanceDude]

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Originally Posted by donheff [RANT ON]How does restoring the roaring 90s tax levels for the rich and relatively wealthy (I include myself in that category) translate into "oblivion?" A little further back in the thread someone else commented on their dad thriving in those wonderful post war 50s when the US was booming. Take a look at the marginal rates back then. Far from getting trashed, it seems to me that the rich have been elevated to a protected minority over the last three decades. Cut their taxes to the bone. Deregulate them so they can stick it to us with a sneer. Bail them out when they screw up. The disgraced CEO from BP gets to crawl away with a $1M/year pension. Goldman Sacks partners are swimming in bonuses. That's oblivion?[/RANT OFF] Have a nice day now

This isn't the 50's........... Let's tax the rich heavily, and give everyone a defined benefit plan..........wait, that WAS the 50's...........NM...........

[ziggy29]

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Originally Posted by samclem We know what happened. Explain how it was a "misuse" of capitalism? If anything, folks on the left usually maintain that it was "capitalism run amok" or "too much free market." Every one of these examples you cite had willing buyers and sellers.

Yes, but these transactions don't occur in a vacuum. If a "buyer" of these toxic assets could afford it and did so with full disclosures and understanding of what they were purchasing, AND if the failure of those toxic assets would not cumulatively wreck the economy or put taxpayers on the hook, I would agree completely that these are the consequences of "free market" transactions (at least if there was no fraud on the seller's part). People who choose to gamble must understand and accept that they may lose. The problem here is that when they gamble and lose, almost all of us are forced to lose with them even if we didn't gamble ourselves.

Like "too big to fail" financials, though, these "bad trades" harm all of us when they turn toxic, not just those who were willing parties in the transaction. That's the real problem here, IMO -- we can't "quarantine" the negative impact of reckless borrowing, lending or speculating in a way that insulates the rest of us who had nothing to do with these transactions.

[samclem]

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Originally Posted by ziggy29 That's the real problem here, IMO -- we can't "quarantine" the negative impact of reckless borrowing, lending or speculating in a way that insulates the rest of us who had nothing to do with these transactions.

I think it's fair to say that we didn't "'quarantine' the negative impact of reckless borrowing, lending or speculating", in fact the government backing of Fannie and Freddie and the government decision to bail out the profligate risk-takers (AIG, etc) did exactly the opposite. That's a lot different from saying we couldn't do a lot to insulate society as a whole from these risks and to reduce the incentives for taking the risks in the first place. Step one: Stop subsidizing the risk takers with taxpayer money. Step two: Enforce the laws and lock up white-collar criminals who break them. Step 3: Too big to fail: Either limit the size of companies or institute meaningful (e.g. intrusive) government oversight of TBTF players and force payment into a fund big enough to clean up the messes.

[HFWR]

Fannie and Freddie actually had tighter standards than the crap being written by mortgage brokers, clamored for by Wall Street, then packaged as AAA when it was really junk, which was pencil-whipped by Moody's and S&P, so the pig would have lipstick, which then was sold to people who didn't understand that AAA really wasn't...

Of course, so much money was being made that even Fannie and Freddie joined the subprime party. And, so much money was being made that clearer heads never prevailed...

Alan Greenspan himself remarked how surprised he was that the market didn't self-regulate.

As for the "bail-outs", the cascading bankruptcies that would have taken place without them would have been cold comfort.

Since everyone had a hand in it, no one deserves to feel much righteous indignation, either over the Great Recession, or the financial shape we're in as a country. Since neither side wants to reach an agreement at the expense of losing power, or, gasp, arrgh, compromise, we have the current situation.

[FinanceDude]

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Originally Posted by HFWR Fannie and Freddie actually had tighter standards than the crap being written by mortgage brokers, clamored for by Wall Street, then packaged as AAA when it was really junk, which was pencil-whipped by Moody's and S&P, so the pig would have lipstick, which then was sold to people who didn't understand that AAA really wasn't... Of course, so much money was being made that even Fannie and Freddie joined the subprime party. And, so much money was being made that clearer heads never prevailed... Alan Greenspan himself remarked how surprised he was that the market didn't self-regulate. As for the "bail-outs", the cascading bankruptcies that would have taken place without them would have been cold comfort. Since everyone had a hand in it, no one deserves to feel much righteous indignation, either over the Great Recession, or the financial shape we're in as a country. Since neither side wants to reach an agreement at the expense of losing power, or, gasp, arrgh, compromise, we have the current situation.

GM and CHrysler should have been allowed to go into bankruptcy. I guess the bailouts of AIG and Freddie and Fannie were necessary. AIG and Freddie and Fannie are permanent taxpayer black holes, might as well include them in the budget as a line item............

[HFWR]

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Originally Posted by FinanceDude GM and Chrysler should have been allowed to go into bankruptcy.

That would have been a lot of jobs, and economic activity, lost...

[FinanceDude]

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Originally Posted by HFWR That would have been a lot of jobs, and economic activity, lost...

How many companies have filed for bankruptcy protection over the years, thousands? Now we own 29% of GM and there's talk of getting the rest of the taxpayer money out at a loss of $15 billion?

Ford seems to be doing well without taking Govt money............quite a model for the others to follow...........

[Independent]

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Originally Posted by samclem The mutual influence and dependency between the supposedly "independent" entities of government and bond rating agencies deserves some thorough airing out. Here's an ABC News story from today that brings this home. In part: I want these discussions out in the open. No one in the government should be putting behind-the-scenes pressure on S&P to delay or modify their reports. It's different if the government requests that a news outlet avoid publishing sensitive information to protect lives, sources, or intelligence methods. This is an attempt to change the behavior of a rating agency simply for political purposes. I'll bet we get no investigation.

What would be the standard practice for S&P and a corporation? Do they notify management days or weeks in advance that a downgrade is likely?
If the downgrade is significantly connected to a losing division, would they hold off a few days because the CEO said he has a public announcement about that division that he'd like to get out before the rating?

Those are serious questions, not rhetorical. I don't work directly with rating agencies. My general impression from talking to people who do is that there is enough dialog between management and the raters that it's at least possible the answer is "yes" to both.

[Independent]

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Originally Posted by FinanceDude GM and CHrysler should have been allowed to go into bankruptcy. I guess the bailouts of AIG and Freddie and Fannie were necessary. AIG and Freddie and Fannie are permanent taxpayer black holes, might as well include them in the budget as a line item............

GM and Chrysler did go into bankruptcy. The shareholders were wiped out, the bondholders got equity instead of debt. The the taxpayers put money into the pot, but none of the private stakeholders walked away with 100% of what they wanted.

These are tough issues, but I think I would done something similar with F&F, Bear Stearns, AIG, etc. We could have put enough money into the pot to stabilize the system without giving their bondholders/creditors 100 cents on the dollar.

[FinanceDude]

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Originally Posted by Independent GM and Chrysler did go into bankruptcy. The shareholders were wiped out, the bondholders got equity instead of debt. The the taxpayers put money into the pot, but none of the private stakeholders walked away with 100% of what they wanted. These are tough issues, but I think I would done something similar with F&F, Bear Stearns, AIG, etc. We could have put enough money into the pot to stabilize the system without giving their bondholders/creditors 100 cents on the dollar.

When traditional bankruptcy happens, taxpayer money is not involved.........

[MasterBlaster]

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Originally Posted by Independent GM and Chrysler did go into bankruptcy. The shareholders were wiped out, the bondholders got equity instead of debt. The the taxpayers put money into the pot, but none of the private stakeholders walked away with 100% of what they wanted. These are tough issues, but I think I would done something similar with F&F, Bear Stearns, AIG, etc. We could have put enough money into the pot to stabilize the system without giving their bondholders/creditors 100 cents on the dollar.

I tend to agree.

But I would remind you that the world was teetering on disaster - remember the fear !

Quick decisions were made. Could they have done better now looking back with hindsight. Perhaps they could. There were also issues of getting banks on board fast before disaster occurred. Doing what you proposed may not have worked out like we planned.

In hind sight they did pretty good, considering.

[FinanceDude]

With regards to GM, the UAW got a seat on the Board and a pretty good piece of ownership of the company. GM STILL has a huge unfunded pension liability issue, about $27 billion. They need to sell a LOT of cars to make that work. GM will be back asking for money in the next 5 years, count on it!

The Volt is a nice car, but it will take years for cars like that to be mainstream. Meanwhile, Toyota sold their 3 MILLIONTH Prius. The Japanese yet again teach us a lesson about innovation...........

[HFWR]

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Originally Posted by FinanceDude When traditional bankruptcy happens, taxpayer money is not involved.........

As I understand it, no one had deep enough pockets to fund a re-org, and the only alternative would have been Chapter 7 liquidation. Seems to me we picked the lesser of two evils, but, obviously opinions differ...

[FinanceDude]

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Originally Posted by HFWR As I understand it, no one had deep enough pockets to fund a re-org, and the only alternative would have been Chapter 7 liquidation. Seems to me we picked the lesser of two evils, but, obviously opinions differ...

I think it was more of a political move than a solvency issue. One can understand trying to avert disaster at Fannie and Freddie and maybe AIG but the car companies are a head scratcher............

[Independent]

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Originally Posted by FinanceDude I think it was more of a political move than a solvency issue. One can understand trying to avert disaster at Fannie and Freddie and maybe AIG but the car companies are a head scratcher............

I'm on the opposite side. I can't understand why F&F, AIG, Bear Stearns, etc. creditors got 100 cents on the dollar when GM and Chrysler's took such a hit. Most of the people who caused the housing bubble and then the credit meltdown get off with a little embarrassment. We were way too generous with them.